Medicare provides important healthcare coverage to people of retirement age, but many people make big mistakes that cost them money and essential coverage. Find out which major mistakes you should avoid, how costly each mistake is, and how to avoid each one.
As you approach retirement age, you may be more concerned about your retirement treasure house than your health insurance coverage. However, it’s important to understand the basics of Medicare to avoid missing your chance to enroll or to pay higher premiums for delaying enrollment.
Here are four big Medicare mistakes that everyone should avoid.
Assuming that You Will Automatically be Enrolled
Many people assume that they are automatically enrolled in Medicare when they turn 65, but that is not always the case.
The Medicare system only auto-enrolls certain individuals into Part A and Part B:
Those who receive Social Security benefits at least 4 months before their 65th birthday.
Assuming that you will automatically be enrolled in Medicare can be a costly mistake. If you do not fit into the category above, you will need to sign up for Medicare on your own.
If you’re not sure whether you will be auto-enrolled, contact your local Social Security office to determine how and when to enroll. Your city’s Social Security office is a treasure trove of information, so use their services to figure out your options and to understand how to move forward.
Missing the Enrollment Period
Once you are eligible for Medicare, you only have a limited period to enroll before you start incurring penalties.
The initial Medicare enrollment period runs from three months before your 65th birthday until three months after your birthday.
If you don’t enroll in Medicare during this period, you will have to wait until the general enrollment period to sign up, which runs from January 1 through March 31 every year. Even if you sign up during the general enrollment period, your coverage won’t kick in until July.
The only way to avoid a gap in your medical benefits is to make sure that you sign up during the initial enrollment period.
In addition to a gap in coverage, you may also face a penalty for not enrolling in time. You may be faced with a lifetime enrollment penalty that only increases the longer you wait to sign up.
Not Understanding Late Penalties for Part B and Part D
Many people put off enrolling in Medicare Part B and Part D, failing to sign up before the initial enrollment period may cost you.
The only way to avoid a penalty for not enrolling is to have creditable medical coverage from an employer. If you are over the age of 65 and working for a company with more than 20 employees, you likely have a group health plan that would allow you to delay enrollment without penalty.
If you delay Medicare enrollment for any other reason, you will likely gain a penalty. That penalty is added to your premium when you finally do enroll. This is a lifelong penalty that is based on how long you waited to enroll.
The penalty for Part B is as follows:
- Your base premium * 10% * the number of years you delayed
For example, if you waited until four years after your 65th birthday to enroll and your base premium was $144.60 (the standard premium rate), your penalty would be $57.84, or 40%. Your premium would then be $202.44.
As you can see, delaying enrollment is a costly mistake.
Delaying your enrollment in Medicare Part D (which offers prescription drug coverage) will also lead to a penalty unless you have some form of creditable drug coverage. Many people put off enrolling in Part D because they aren’t taking any medications, but the penalty you incur could be costly.
If you fail to enroll in Medicare Part D during the initial enrollment period, you will have to wait until the general enrollment period. Depending on your situation, you may be left paying for expensive prescription drugs out of your pocket until you can sign up for Part D, and your coverage kicks in.
You will also be hit with a penalty:
- 1% of your base premium * the number of years you delayed enrollment
Using the above example (delaying 4 years), the penalty would be $1.44, which would bring your total premium to about $146. The late enrollment penalty for Part D isn’t as steep as the penalty for Part B, but if you are late to enroll in both, it could push your premium to an unaffordable level.
Not Having the Right Coverage
Not understanding all of your coverage options and their costs is another major mistake. When you become eligible for Medicare, you can choose to receive your benefits through regular Medicare or a Medicare Advantage plan. There are also Medicare supplement plans available.
The type of coverage you choose will depend on a number of factors, including your healthcare needs, your location, the type of insurance your doctor accepts, your financial situation, and how often you travel.
Original Medicare Plans
Offered by the federal government, traditional Medicare is comprised of:
- Part A: Covers hospital costs
- Part B: Covers doctor visits and outpatient care
Most doctors accept traditional Medicare. There is no limit on annual out-of-pocket costs with this insurance. To cover the out-of-pocket costs associated with this coverage, there are Medicare supplement policies and Medigap policies, both of which have separate monthly premiums.
Traditional Medicare does not have Part D (prescription coverage), so you will need to enroll in a separate Part D plan if you do not have creditable drug coverage.
A Medicare Advantage (MA) plan is a private alternative to Medicare. These plans typically include Part A, Part B, and Part D benefits, but they may also have other benefits that Medicare does not provide, such as:
- Dental coverage
- Vision coverage
The costs and rules may also be different from the original Medicare. MA plans do have limits on annual out-of-pocket costs, but you cannot enroll in a Medigap policy if you have an MA plan.
Medicare provides essential healthcare coverage to retired Americans, but there are rules and coverage limitations that everyone should know and understand. Avoiding these four mistakes will help you save money on unnecessary penalties and ensure that you have the coverage you need.
What questions do you have about Medicare?